Economic Forecasts

Gasoline Prices to Turn Higher

Kiplinger's latest forecast on the direction of energy prices

Watch out for a bump in gasoline prices in coming days. The positive news about Pfizer’s coronavirus vaccine trial, and hopes that it and other vaccines could bring the pandemic under control, caused oil prices to soar, as investors bet that consumption will recover when consumers can travel freely again. That in turn sent gasoline futures contracts sharply higher in Monday’s trading. Retail gas prices had been slipping, with the national average price of regular unleaded at $2.11 per gallon today. Look for the average price to perk up soon as the jump in futures prices filters through to the retail level. Diesel, now averaging $2.37 per gallon, is also likely to rise a bit.

Hopes for a COVID-19 vaccine sent benchmark West Texas Intermediate crude futures to $41 per barrel, up several dollars from the pre-Pfizer-news price. The rally may continue in the near term, but we think prices will pull back again as traders realize that, no matter how effective any vaccine is, it’ll be months before one can be distributed widely enough to let life get back to normal. In the meantime, oil demand will likely remain depressed. We look for WTI to return to a trading level of $35 to $40 per barrel by late this year.

Natural gas prices remain near their recent peak, with the benchmark gas futures contract trading near $2.95 per million British thermal units. The rally in gas prices is surprising, given the unusually mild weather across the eastern United States, which has been keeping heating demand low. Perhaps traders are betting that the weather is going to turn sharply colder soon. But if it doesn’t, we think the rally in gas prices could reverse. Gas stockpiles in underground storage are well above average for this time of year, so without strong demand, it’s hard to see how prices can keep rising.

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